Question

table of contents > unit 7 - fiscal policy > unit 7 knewton & goview activities > unit 7 (7.4) - more on fiscal policy
unit 7 (7.4) - more on fiscal policy
get familiar with this topic by reviewing instruction and answering a couple of questions.
question
if the budget is balanced each and every year, how would automatic stabilizers behave?
select the correct answer below:
○ they would work in excess and cause large economic fluctuations
○ they would not work and economic fluctuations would worsen
○ their effects would be cancelled out
○ the budget would replace the automatic stabilizers, performing the same work

Explanation:

Automatic stabilizers work through deficits (in recessions) and surpluses (in booms). If the budget is balanced yearly, there's no room for these natural adjustments. So, automatic stabilizers can't operate.

Answer:

they would not work and economic fluctuations would worsen